Information Services Group, Inc.

Good morning and welcome everyone to the Information Services Group second quarter 2024 conference call. This call is being recorded and a replay will be available on ISG's website within 24 hours. Now I'd like to turn the call over to Mr. Barry Holt for his opening remarks and introductions. Mr. Holt, please go ahead.

Thank you, operator. Hello and good morning. My name is Barry Holt. I'm a senior communications executive at ISG. I'd like to welcome everyone to ISG's second quarter conference call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer, and Michael Sherrick, Executive Vice President and Chief Financial Officer. Before we begin, I'd like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8K that was furnished last night to the SEC and the risk factor section in ISG's Form 10K covering full-year results. You should also read ISG's annual report on Form 10K and any other relevant documents, including any amendments or supplements to these documents filed with the SEC. You'll be able to obtain free copies of any of ISG's SEC filings on either ISG's website at www.isg-1.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statement to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures, which we will touch on today, include adjusted EBITDA, adjusted net earnings, and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8K, which was filed last night with the SEC. And now, I'd like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike?

Thank you, Barry, and good morning, everyone. Today, we will review our sequentially stronger results for the second quarter. our perspective on the demand environment, and our outlook for Q3. ISG delivered sequentially stronger profits in Q2 with adjusted EBITDA up more than 60% at $7.1 million. Our adjusted EBITDA margin at 11% was up more than 400 basis points versus Q1 on an improved product and service mix. And our utilization improved more than 800 basis points sequentially to reach a record high of 78 percent, reflecting a pickup in demand we saw in the back half of the quarter. Our revenue base stabilized in Q2 at $64.3 million, even with the first quarter. So, good sequential progress in a challenging market where client decision-making and spending continue to be impacted by the macro environment. While reported results were down versus the prior year, We also had record revenues in Q2 last year, making for a difficult comparison. Our recurring revenue streams continue to be a strength for ISG, led in Q2 by our research and GovernX businesses. We generated $32 million of recurring revenue in the second quarter, representing half of our firm-wide revenue, with recurring growing 5% now in the trailing 12 months. One early sign of improving demand can be found in the contract value flowing through ISG Tango, our new digital sourcing platform. Total contract value, or TCV, on ISG Tango has reached $4 billion in just the first 100 days or so since we launched the platform. ISG Tango is a growth and margin enhancement opportunity for ISG. This innovative AI-powered solution accelerates speed to value for our enterprise clients and the provider community. It also supports our margin expansion and allows us to extend our addressable market to mid-sized companies. Indeed, more than 25% of the current TCV on ISG Tango is for mid-sized companies. We also see the adoption of AI as a catalyst for growth. Our experts leverage ISG's towering strengths in operating model design, sourcing advisory and governance, and our deep knowledge of the entire provider ecosystem to guide our clients in deploying AI at scale and accelerate business outcomes. Our ISG research team has recently produced a series of detailed surveys on AI that have been a key source of guidance for our clients. This includes a deep dive generative AI software buyer's guide from our Ventana research team. As clients progress from proofs of concept to full-scale implementation, ISG will be with them every step of the way, making sure they have the right platforms and operating models in place and are using AI effectively and responsibly. And with the momentum of AI, there will be a knock-on effect in other areas. with increased spending on cloud-based infrastructure, software-defined networking, and advanced data and analytics, to name a few. In short, AI is a net positive for ISG. With that, let me turn to our regions. As I mentioned at the outset, our revenues were stable quarter over quarter, but on a reported basis, we faced a difficult compare with a record Q2 last year. In the Americas, reported revenues at $40 million were down 2 percent sequentially and down 5 percent versus the prior year. During Q2, we saw double-digit growth in our manufacturing industry vertical and in automation and governance. Key client engagements during the second quarter included Thermo Fisher Scientific, Carnival, GE Aerospace, GE Vernova, and Centene. During the quarter, ISG won a $4 million engagement to renew the intelligent automation ecosystem of a clinical research business. ISG has delivered a range of services and has been a trusted advisor to this client for more than seven years. We're also realizing new opportunities by way of divestitures. Because of our longstanding relationships with large enterprise clients, ISG is well-positioned to support spinoffs as they separate from their parent companies. For instance, in Q2, we signed a million-dollar-plus transformational technology sourcing engagement with a global aerospace spinoff with further growth opportunities on the horizon. And we won a three-year, nearly $2 million, GovernX engagement with a new global healthcare company that was spun off from a large Fortune 500 firm. Also of note, we recently announced a new partnership with Core Trust, one of North America's largest group purchasing organizations. Under the agreement, ISG will initially provide a custom package of intelligent automation services to Core Trust's 3,200 member companies. Importantly, the partnership represents a bigger opportunity to serve the cost optimization needs of these 3,200 companies with additional ISG services such as network, software, and sourcing to be offered in the future. Turning to Europe, our Q2 revenues of $19 million were up 6% sequentially, down 23% from last year. During the quarter, Europe delivered double-digit revenue growth in our consumer and insurance industry verticals, and in our network software and research businesses. Key client engagements in Europe in the second quarter included Volkswagen, Excite, Allianz, and BASF. During Q2, ISG was awarded a sourcing engagement with a new client in Germany. a leading science and technology company with opportunities for expansion. Significantly, we won this business on a referral from another large client based in Germany, underscoring the strength of our client relationships. That strength is represented in ISG's global client experience scores, which are among the highest in the industry. Currently, 98 percent of our clients express both broad satisfaction with our services and a willingness to recommend ISG to other companies. Now, turning to Asia Pacific, our Q2 revenues of $5.5 million were essentially flat on a sequential basis, down 31 percent from last year. Key clients in the quarter included the Australian Taxation Office, Department of Home Affairs, Endeavor Group, another spinoff client, and new client Smart Group, a provider of salary packaging and fleet management services. Now let me turn to guidance. As I mentioned at the outset, our higher margin mix and strong utilization positions us well as the market begins to recover. Our blue chip clients are telling us that technology modernization remains a top priority and investments will slowly catch up as macro conditions improve. Efficiency, cost optimization, and transformation remain the key themes. As clients become more cautiously optimistic, we expect demand to inch up in the months ahead. In line with this view and considering the seasonality of summer holidays, especially in Europe, we will remain cautious on Q3 guidance. So, for the third quarter, we are targeting revenues of between $64 and $66 million, and adjusted EBITDA between $7 and $8 million. We remain confident in our strategy and stand ready to capitalize on new business opportunity as growth returns. So, with that, let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael?